Every investor wants to know where their money is going and who is managing it. When searching for the right investment vehicle or an advisor, the term "AUM" often comes up.
But what is AUM, and why does it matter? AUM, or Assets Under Management, is one of the most critical indicators in the world of finance. It tells you how much money a firm or advisor is managing on behalf of clients.
Here's a simple breakdown to help you understand AUM and why it matters when you're choosing where to invest your money.
To put it plainly, AUM stands for Assets Under Management. It is a measure of the total market value of the assets a financial institution manages on behalf of its clients at any given point in time. These assets may include stocks, bonds, cash equivalents, funds, real estate, and alternative investments.
Learning the answer to the question “what is AUM?” is essential because it gives an idea of the size and performance capacity of an investment company or fund. Whether you are looking into a fund, a ULIP Plan, or considering hiring a financial advisor, looking at their AUM can help assess their credibility and operational scale.
Typically, higher AUM indicates investor confidence and reflects the firm's ability to attract and retain clients. However, it should be considered alongside other factors like performance, fees, and strategy before making any investment decision.
One might wonder why the assets under management figure is so important. Here's why:
First, AUM can indicate the financial strength and popularity of a fund or institution. A firm managing a larger pool of assets often has more resources, more experienced professionals, and potentially more stability.
Second, AUM influences the revenue generated through management fees. These fees are usually charged as a percentage of the total assets being managed. So, as AUM grows, so does the earning potential for the company or advisor.
Lastly, regulatory bodies often look at AUM levels to decide how a firm should be registered or supervised. When a company manages a large amount of assets, it may need to follow stricter rules. This helps build trust and ensures more transparency for people considering different investment plans.
The AUM formula isn’t complex, but its exact method of calculation can differ slightly across institutions. Essentially, it includes the following:
For example, if a fund manages ₹200 crore in stocks, ₹50 crore in bonds, and ₹10 crore in liquid cash, the assets under management would be ₹260 crore.
It’s also important to note whether the assets are under discretionary or non-discretionary management. In discretionary accounts, the manager has the authority to make decisions without the client’s consent, and such accounts always count toward AUM. Non-discretionary accounts may or may not be included depending on how active the advisor’s role is.
In most cases, AUM is calculated daily for funds, especially those with net asset value (NAV) updates. However, for advisory services or long term investment portfolios, the figure may be updated monthly or quarterly.
Understanding assets under management becomes easier when you look at a few real-life scenarios. Here are two practical examples that show how AUM is applied in the financial world.
Imagine a fund that invests across different asset classes. It holds ₹800 crore in equity, ₹500 crore in debt instruments, and ₹100 crore in liquid cash. Altogether, the fund's assets under management stand at ₹1,400 crore. This figure gives investors a clear picture of the fund’s size and the scale at which it operates. A larger AUM often means greater market presence and the ability to handle diverse investor needs.
Now, take the case of a professional financial advisor who manages portfolios for around 100 clients. The total investment amount under their watch is ₹75 crore. Out of this, ₹50 crore is under discretionary management, where the advisor makes decisions on behalf of clients, while ₹25 crore is advisory, meaning the client approves every move. As per standard practice, only the ₹50 crore in discretionary accounts may be officially counted as part of the advisor’s AUM.
A similar approach applies to insurance-based investment products. In these cases, the insurer manages funds collected from policyholders, and the total value of these funds is considered part of the company’s assets under management.
Several factors can cause the assets under management of a fund or financial institution to increase or decrease over time. While AUM may seem like a straightforward figure, it is actually influenced by a combination of market behavior, investor actions, and internal fund decisions.
Here are the key elements that play a role in shaping AUM:
Market movement plays a huge role in affecting AUM. When equity markets rise, the value of investments held by a fund also increases. This naturally boosts the total assets under management. Even without any new investments coming in, a market rally can cause AUM to grow.
On the other hand, when markets fall, the value of those same assets goes down. This leads to a lower AUM, even if all investors stay invested. This factor reflects how sensitive AUM is to price fluctuations in financial markets.
New investments from clients directly raise the AUM of a fund. When more investors put their money into a fund, the managed assets increase. This is especially common in funds and good investment options for long-term growth.
At the same time, redemptions or withdrawals have the opposite effect. When investors pull out their money, the AUM goes down. Consistent inflows often indicate trust in the fund’s strategy, while frequent outflows may suggest the need for reassessment.
Payouts like dividends, interest, and scheduled withdrawals reduce the total managed assets. These are common in retirement portfolios and long term investment schemes where clients begin drawing down their funds after a certain period.
In funds, once the policy matures or hits the withdrawal phase, investors may start redeeming their units. This reduces the fund’s AUM, even if no other factor changes. Such outflows are a normal part of financial planning, but do affect the reported asset size.
Every investment strategy has a limit to how much money it can effectively manage. Some funds, especially those focused on niche or mid-cap stocks, cannot handle excessive inflows without affecting their performance.
When such funds reach their capacity, they may limit new investments to protect returns. For example, a concentrated equity fund might cap its intake once it crosses a certain size. This ensures that the fund manager can maintain focus and avoid diluting the strategy. As a result, the growth of the assets under management slows down or stops intentionally, even when investor interest remains strong.
It’s easy to confuse it with related terms, especially without knowing the AUM full form. Here's how it compares:
For example, the PNB MetLife Fund Performance reflects total investments managed under its various funds, including life insurance and the ULIP Plan.
Management fees are usually a percentage of the total assets under management. For instance, if a fund charges 1% annually and has ₹500 crore AUM, it earns ₹5 crore in fees.
Here’s how fee structures are typically influenced by AUM:
AUM growth directly translates to higher revenue, especially for funds and financial institutions managing retirement portfolios, insurance schemes, or value-oriented funds.
While assets under management are a handy indicator, it has limitations:
Hence, while AUM is important, it should be viewed along with other factors like returns, portfolio mix, and risk level. For example, understanding answers to questions like “What is a value fund?” can give better context when comparing investment options and their long-term potential.
The financial world is constantly evolving, and so is the way assets under management grow and adapt. Several trends are now playing a major role in shaping how AUM increases across different sectors. Here’s a closer look at what’s driving that growth.
Over the past few years, more investors have started choosing passive investment options like index funds and exchange-traded funds (ETFs). These funds mirror market indices and often come with lower fees. As more people shift towards these cost-effective choices, the assets under management of such funds continue to rise steadily. The simplicity and long-term potential of passive investing make it a popular route, especially for retail investors looking for stability.
With the help of advanced digital platforms, fund managers and advisors can now track AUM with much greater accuracy. Tools that offer real-time updates on portfolio performance and inflows have made it easier to manage client assets efficiently. This has improved transparency and allowed investors to make quicker, better-informed decisions. As a result, digital innovation is directly supporting the growth and smooth management of assets under management.
Insurance-based investment options are also contributing to the rise in AUM. These plans combine life cover with investment in equity or debt markets. Funds like the PNB MetLife Value Fund manage large pools of investor money, which are professionally allocated across various asset classes. This structure has helped insurance companies grow their AUM significantly while offering investors a blend of protection and returns.
Assets under management are a key figure that reflects how much value an institution or professional handles on behalf of investors. It acts as a snapshot of credibility, performance, and scale. However, it should never be the only metric considered.
For anyone exploring long-term investment options, understanding AUM can provide helpful insights and support smarter financial decisions. With the right guidance and a clear view of your goals, you can confidently choose investment paths that match your future plans.
A high assets under management figure usually shows that a fund or advisor has gained investor trust and handles a large volume of investments. It can suggest experience and stability. However, it doesn't always mean better returns. In some cases, very high AUM can limit flexibility, especially in small or mid-cap funds. So, it's neither fully good nor bad - it depends on the fund's strategy and how well it manages that scale.
AUM gives you an idea of how much total value is being managed by a fund, advisor, or financial institution. It can indicate the popularity, size, and credibility of an investment option. While it's a useful metric, it should always be reviewed along with performance, fees, and long-term goals before making any investment decision.
In most cases, assets under management and fund size refer to the same thing: the total market value of the assets a fund manages. However, some people use "fund size" more casually, and it might refer to the initial capital raised or the total investor base. AUM is a more precise and updated measure, as it changes with market movements and investor flows.
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Piyush Kataria, SEO Manager at PNB MetLife, is a seasoned digital marketing strategist with over a decade of experience in optimizing websites for search engines. His expertise extends to keyword research, content strategy, technical SEO, and link building, all of which have been instrumental in driving organic traffic growth at PNB MetLife. With a strong foundation in life insurance, Piyush leverages his industry knowledge to create targeted and effective SEO campaigns.
Sakshi Malhotra is a seasoned marketing professional associated with the Life Insurance industry since 2007. At PNB MetLife, she heads Digital Marketing and Direct to Customer line of business. She is responsible for driving effective customer engagement through the company’s website and social media channels. In addition, she drives customer online buying journeys to help them buy the right product.
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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